Sebi allows debenture trustees to seek credit rating details

Capital market regulator Sebi on Friday asked the credit rating agencies (CRAs) to share with the debenture trustees all relevant information about the ratings assigned by them for debt securities and about the issuers of such instruments.

Mumbai: Capital market regulator Sebi on Friday asked the credit rating agencies (CRAs) to share with the debenture trustees all relevant information about the ratings assigned by them for debt securities and about the issuers of such instruments.

With the latest move, Sebi has enabled a two-way information sharing arrangement between the CRAs and Debenture Trustees (DTs) to help them effectively discharg their respective functions.

So far, only DTs were required to share information regarding their clients with the CRAs. However, Sebi has been receiving requests from DTs as well to allow them to seek relevant information from rating agencies about the issuer companies of the debt securities.

"In consultation with DTs and CRAs, it has been decided that registered DTs and CRAs shall share information with each other... DTs and CRAs may share any other information from time to time in respect of issues/issuer companies which would help them in effective discharge of their duties," Sebi said in a circular.

As per the new guidelines, DTs can ask CRAs about rating assigned and revised for debt securities along with the rationale for the same.

Among other things, they can also ask for press releases and outstanding ratings in respect of debt securities.

On the other hand, CRAs can ask DTs whether the assets for which securities have been created are "free from any encumbrance and adequate to ensure asset cover for the debentures or if there is any breach of the terms of creation of the security". The trustees would need to provide such information on a half-yearly basis.

Besides, CRAs can also seek information related to funds transferred to Debenture Redemption Reserve (DRR), depletion of the DRR or invocation of guarantee, which could affect the payment of debenture obligations. Such details would need to be shared on a yearly basis.

CRAs can also gather from DTs details of redemption, defaults, or any change or restructuring of the terms of the issue.

In addition, rating agencies can also ask for periodic reports from lead banks about the progress of the project for which funds have been raised through debentures. They can also ask for certificates from issuer's auditors in respect of the utilisation of funds.

Sebi said that CRAs can also seek details of grievances filed by debenture-holders and action taken to resolve them in addition to non-cooperation by the issuer with respect to furnishing required reports/certificates/information, Sebi said.